T-Mobile (TMUS, Financial) released its third quarter fiscal 2016 results, managing to make new customer additions at the cost of its larger rivals, Verizon (VZ, Financial) and AT&T (T, Financial). The company achieved this by lowering prices without compromising profits. The numbers for the quarter reflect how T-Mobile has found an effective way of expanding its customer base while growing its bottom line. The Bellevue-based telecom player reported earnings that surpassed analysts’ expectations. The company’s adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased to $2.6 billion against analysts’ estimate of $2.4 billion.
T-Mobile’s focus on customers is earning rewards for the company in the form of strong customer additions while rival players lose them. Here’s a closer look at the third-largest American telecom player’s quarterly statistics.
Snapshot of the quarter
T-Mobile’s sales increased 18% to $9.2 billion compared with the same quarter last year. However, the company’s revenue came in slightly below analyst expectations of $9.43 billion. The telecom provider’s third quarter net income improved to $366 million, which translates to 42 cents per share, against $138 million, or 15 cents per share in the same quarter last year. The company’s branded average revenue per postpaid phone user came in at $48.15, well above average analyst estimate of $46.61.
During the quarter, T-Mobile added 857,000 postpaid customers, which are the most lucrative to wireless players. In addition, the company added 684,000 prepaid subscribers, which is more than the combined prepaid customer additions of Verizon, AT&T and Sprint (S, Financial) during the quarter. T-Mobile is targeting mass data hoggers, those who are addicted to YoutTube and Snapchat, through unlimited data plans for individuals and families as well as promoting free video-streaming through Binge On. T-Mobile has introduced an unlimited data plan for $160 a month for families of four.
The company expects to record 3.7 million to 3.9 million fresh monthly subscribers in the current fiscal compared with the earlier range of 3.4 million to 3.8 million subscribers. The company is witnessing strong demand for the lately released Apple (AAPL, Financial) iPhone 7, which should help in the expansion of the subscriber base. As far as EBITDA is concerned, the wireless carrier has given guidance in the range of $10.2 billion to $10.4 billion for the entire fiscal compared with the earlier outlook of $9.8 billion to $10.1 billion.
Face off with AT&T
T-Mobile’s aggressive plans are impacting the subscriber growth of Verizon and AT&T. On one hand, Verizon experienced the worst third quarter of the last six years in terms of subscriber addition. On the other hand, AT&T reported its eighth consecutive quarter of reduction in the net postpaid phone subscriber base.
T-Mobile CEO John Legere commented on AT&T, saying that the wireless carrier is “bleeding” and needs “to go and find new revenue streams”. According to Legere, AT&T’s decision to acquire Time Warner (TWX, Financial) is an instance of vertical integration that will help the company add a new area of revenue, as it is losing mobile subscribers. In addition, Legere is confident that T-Mobile will be able to surpass AT&T in terms of subscriber base in the next five years.
Last words
The wireless industry has experienced intensified competition over the last three years with both Verizon and AT&T facing stiff competition from the likes of T-Mobile and Sprint, as they are engaged in challenging the dominance of their larger rivals. T-Mobile’s un-carrier approach and simple strategy of focusing on the needs of its wireless customers has worked in its favor. Let’s stay tuned to see how the telecom player works to combat its larger rivals.
Disclosure: I do not hold any position in the stocks discussed in this article.
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